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Covenantal Relationships in Business
By Chris Banescu - March 7, 2003

Managers now operate in a business environment where ethics is no longer an option; it is key to an organization's long-term success. Modern business ethics require that managers learn how to adapt to incorporating ethical practices in all their activities and work to establish some limitations on the self-interested model of management.

The old business paradigm viewed companies as isolated entities who competed for survival against other corporations in a hostile business environment. Companies built up a strong concept of self-interest that focused solely on profitability. Many organizations have extended Adam Smith's market model to their enterprises and have concluded that businesses should only pursue their own interests. Such inward-facing mentality has provided ethical justifications for a slew of predatory practices toward vendors, suppliers, customers, partners, distributors, and even a company's own employees.

In the "old" economy, management at all levels was encouraged to maximize short-term results and not worry about the long-term consequences of its actions. Under such a "siege" mentality, ethical decision making took a back seat and was not given much consideration. Who can worry about tending the garden when management is told the castle is under siege? Such an approach, however, can no longer work in the new, increasingly interconnected, strongly competitive, value-driven, and customer-focused global economy.

Laura Nash explains how the self-interest models of business behaviors have not been very well suited to integrating ethical constructs into managerial decisions. She suggests a new more enlightened approach which she calls the "covenantal business ethic." From an ethical standpoint, this approach focuses on service and value delivery to both your customers and your employees, as opposed to maximizing returns.

Another aspect of a covenantal business ethic approach focuses on how management should treat employees. At the core of this approach is trusting and respecting your employees. As one manager stated, "I can establish an open door policy until the cows come home, but if I don't respect my employees, no one will willingly walk through that door." If management wants to earn the respect and loyalty of its employees, they have to again "walk the talk."

Peter Drucker has said that we need to treat employees just as we expect them to treat our customers. If you expect your employees to value customers and to treat them with dignity and respect, you must also treat employees with the same care and concern. An unsatisfied or disgruntled employee can cause just as much damage as a highly paid executive.

Many times management forgets that the goal of a business is not simply to acquire new customers, but also to maintain existing ones. Too many companies focus excessively or even exclusively on getting new customers. These businesses have a reward and compensation system in place that encourages employees to acquire new customers and does nothing to promote and reward when employees strive to maintain existing customers. Such a lopsided approach may bring short-term gains, but it is doomed to ultimately fail.

Many business courses cover the universal rule that it costs businesses anywhere from 5 to 15 times as much (depending on the industry) to acquire a new customer than maintain an existing one. Yet, how many organizations have the necessary management approach in place to reinforce and focus on keeping current customers happy? What are your organization's tendencies and how do you as a manager impact them?

The next logical question is how do you focus your organization on exceeding the expectations of your existing customers while increasing your customer base? The key here is that everyone in your organization -- from the janitor all the way to the CEO -- must understand that it is his or her job to take care of the customer. As Tom Peters has said, "If you're not serving the customer, then you better be serving someone who is."

Until an organization is committed to the philosophy that "the customer is the boss," it will not be able to realize its full potential. Many companies that once flourished have been forced to close their doors because they forgot this basic truth about business. There is only one true boss: the customer. History has shown time and time again what happens to companies that ignore the needs of their customers: bankruptcy, buyout, or dissolution. In recent memory, companies such as United Airlines and Kmart have consistently ignored the needs and wants of their customers. United customers' wanted cheaper fares, more flexible flights, and friendly customer service for years, Kmart customer looked for stocked shelves, larger variety of products, and good customer service. Both companies have paid a huge price for ignoring their customers: bankruptcy. Their competitors on the other hand, Southwest Airlines and Wal-Mart, have stayed close to their customers and their needs, and both have not only survived but prospered, even in tough economic situations.

In order for employees to do the things management wants done, they must be motivated to do those things. An ethical approach to managing your employees is the only means to properly motivate and support them in an ongoing and consistent manner. This includes respecting their styles and differences, listening to their ideas and feedback, and rewarding and acknowledging their superior service and/or performance.

It is also imperative that companies institute a rewards and recognition program that includes not only promotions, but also decent raises (tied to productivity and customer retention goals), a bonus system, and the tools and training necessary for all your employees to improve their skills, education, and abilities. Only then will your organization be able to prove to its employees that it cares about them and their future with the company, is willing to invest the necessary money and resources to support them, and is willing to think ethically and strategically for the long term.

An excessive focus on profit can pose a real threat to ethical decision making. As Laura Nash explains, "Bottom-line thinking traps managers into seeing every ethical dilemma as a choice between morality and profitability." Such an approach will eventually lead to a disregard for ethical behavior, disrespect for others, and excessive focus on personal results instead of relationship thinking and teamwork.

Today's ethical managers must treat their employees with the same respect and care reserved for the most profitable customers or even close family members. Being authoritative and indiscriminate, "lording it over them," or mistreating them may produce results only in the short run and will result in alienating and losing their trust and respect.

On the other hand, ethical relationships built on fairness, trust, and integrity are key to the true success and long-term stability and profitability of an organization. Managers must empower their employees to do the right things, and continually support them. As a result, those employees will indeed give their all and work as hard as possible to meet the financial objectives of the organization while at the same time adhering to their own ethical practices and standards.